Editorial: Retirement fund gets a little more real on returns

Orange County taxpayers just got hit with another $60 million yearly payment into the Orange County Employees Retirement System. The higher amount will begin in 2014. The reason for the higher payment, beginning in 2014, is that OCERS lowered to 7.25 percent from 7.75 percent the estimate of its average annual investment returns.

OCERS is following in the steps of the California Public Employee Retirement System, which in March dropped its investment return estimate to 7.5 percent from 7.75 percent.

But 7.25 percent probably isn't nearly low enough. According to a study this year of local California government funds, "More Pension Math," the Stanford Institute for Economic Policy Research noted that "a blended 20th-century portfolio of equities and fixed income" averaged 6.2 percent a year.

The study also looked at the major local pension funds in California. It calculated that OCERS' "pension costs increased from 1.4 percent of total county expenditures in 1996 to 14.9 percent in 2011." The study projected pensions' share of county spending this year at 15.8 percent.

Supervisor John Moorlach commended OCERS for making the more realistic assumption, but didn't think it went far enough. "At least it's better than CalPERS" higher assumption, he told us, in reference to the giant pension fund for California state employees. But he said that if the more realistic 6.2 percent assumption were used, OCERS' unfunded liability would be "in the $9.7 billion range."

Again, if the 6.2 percent assumption were used, an additional $144 million a year would be taken by law from the county budget (in addition to the $60 million just charged).

In 2012, Orange County is not near bankruptcy. But one should never be too careful. Three California cities declared bankruptcy this year: San Bernardino, Stockton and Mammoth Lakes. And Orange County, of course, itself went bankrupt in 1994.

The point is that the county always needs to look at real, not hopeful, numbers. OCERS maintains that its new 7.25 percent projection is reasonable. OCERS Communications Manager Robert Kinsler sent us the latest estimates of the system's portfolio, as provided by Chief Investment Officer Girard Miller at the Oct. 31 Board of Retirement meeting.

The OCERS fund was up 9.64 percent from Jan. 1 to Oct. 31, 2012. As of that date, the three-year annualized average is 8.37 percent. Also as of that date, over 10 years the annualized rate is 7.97 percent.

Ultimately, what's needed is to move all county workers from the current "defined benefit" plan, in which taxpayers are on the hook to pay a set payout no matter how the market performs, to a "defined contribution," which puts public employees in 401(k)-style plans. Then taxpayers will pay up front, but will not be on the hook for investment shortfalls.

WRITE A LETTER TO THE EDITOR
Letters to the Editor: E-mail to letters@ocregister.com.
Please provide your name, city and telephone number (telephone numbers will not be published).
Letters of about 200 words or videos of 30-seconds
each will be given preference. Letters will be edited for length, grammar and clarity.

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.